Edgardo Torres-Caballero, Managing Director for the Americas at Mambu.

Wednesday, April 18, 2018

Special Reports

Fintech Mambu Eyes Latin America Growth

German fintech targets Brazil, Mexico, Argentina and Colombia.

BY JOACHIM BAMRUD

Latin America’s financial technology (fintech) market is growing and companies like Germany-based Mambu are seeking a piece of the action.

Mambu is mainly targeting Brazil and Mexico, followed by Colombia and Argentina and to some extent Chile.

“There’s a lot of appetite for fintechs – there’s a positive wave of new technologies,” says EdgardoTorres-Caballero, Miami-based Managing Director for the Americas at Mambu.

The advantage companies like Mambu offer is that they can help a bank launch a greenfield digital operation in six months or less, Torres says.

In addition to big investments going into the sector, many of Mambu clients are going through first and second rounds of investments.

According to Statista, there will be more than $100 billion in fintech transactions this year in three Latin American markets alone -- Brazil, Mexico and Argentina.

Latin America accounts for a majority of fintech startups that were established between 2014 and 2016, according to data quoted by the Inter-American Development Bank (IDB).

There are more than 700 startups, both local- and foreign financed, with $186 million in venture capital investment, as of 2016, IDB says.

Of those 85 are foreign companies, according to Finnovista.

“Mexico, Brazil and Colombia position themselves as the main Latin American destinations for foreign Fintech startups mainly from Europe and the United States,” it says. “The segments of Payments and Remittances, Lending, Scoring, Identity and Fraud and Enterprise Technologies for Financial Institutions lead the offer of foreign Fintech in the region.”

In general, experts are most optimistic about the Brazilian and Mexican fintech markets, according to the Economist Intelligence Unit, which recently published a report on the fintech sector in Latin America. EIU points out that Latin America has strong fintech potential due to the fact that is still underbanked comparted with the world average (51 percent vs 62 percent).

“Nearly half of the region's adult population is therefore a potential customer for the banking sector,” EIU says. “Even among those with a bank account, it is reported that 35 percent never use it.”

MEXICO: GROWTH, NEW LAW

In Mexico, fintech transactions will likely end at Mexico at $36.4 billion this year, Statista estimates.

And they will grow strongly. By 2020, they should double to $69 billion, Statista estimates.

In January, the country’s congress passed a new fintech law, which entered into force in March and which the Finance Ministry says is among the most modern of its kind in the world.

“Mexico is leading the way in Latin America to implement regulation in this area for several reasons,” says a report from the law firm of Hogan Lovells.

By establishing the basis for regulation and development of the fintech industry, Mexican regulators are looking to give legal certainty to industry participants and are also hoping to take advantage of the opportunity to expand the financial market by covering segments of the market not covered by traditional banking institutions due to limitations in their infrastructure, cost of services and operational structures, the firm says. “The intention is to encourage products and services that are practical, easy to access and close to the client,” Hogan Lovells says.

Another objective is to provide financial stability, by providing prudential rules in financial risk, operational, technological, marketing, corporate governance and accounting rules, as well as establishing limitations and maximum amounts for transactions.

“Encouraging healthy competition is also important for the regulators, in order to have greater diversity and reduced costs in the provision of services and new distribution channels for financial services consumers,” Hogan Lovells says.

Finally, the new law intends to provide the basis for preventing the use of fintech activities for purposes of money laundering and terrorism financing, as well as protecting the users of financial services, it points out.

Another advantage for fintech is that many customers are unhappy with traditional bank service.

“With long queues, high fees and low cash machine coverage, Mexican banks have a reputation for poor customer service,’ the Financial Timeswrote in an article on the Mexican fintech market. “A recent Gallup poll found that more than three in four customers were indifferent to, or unhappy with their bank. This is creating an opportunity for new fintech — financial technology — challenger.”

Mambu’s Mexico business is a mix of fintech as well as micro credit companies and this year it will also include major banks.

Bankaool was the first digital bank. It is aimed at the agricultural sector. It was acquired by Ve por Mas, also a challenger bank.

“That shows there’s an appetite for fintech,” Torres says.

In Central America and the Caribbean, clients include banks and micro credit firms. In Peru, microcredit firms. In Colombia, PayU and fintech. In Argentina, some banks, fintech and microcredit firms. In Brazil, global clients, including a Frankfurt company with 280 million euro revenues.

BRAZIL & COLOMBIABrazil is the top fintech market in Latin America, with estimates transactions this year of$50.4 billion, according to Statista.

“Brazil is very interesting,” Torres says. “It’s the largest financial center in Latin America, and already has fintech.”

There’s Nubank, a digital bank which is well-financed. And there’s traditional banks like Bradesco, which launched its own digital bank, Next.

“In 2018, we will start to grow in Brazil,” Torres says.

Meanwhile, in Colombia, Mambu is working on several deals.

“Colombia is another interesting market,” Torres says.

The country has a very active Fintech Chamber and fintech sector, he points out.“It has surprised me positively,” he says.

In August, Mambu announced that it had been hired by PayU Colombia to operate loan offers. PayU offers a payment platform for companies throughout Latin America. In Colombia alone, PayU has more than 600,000 pre-approved users.

“We selected Mambu because if its functional breadth and ability to easily integrate with our existing eco-system,” PayU Latam CEO José Vélez said in a statement.

ARGENTINA: GOOD OUTLOOK

Fintech transactions will likely reach $17 billion this year in Argentina, according to Statista. “Argentina last year was great for us,” Torres says. Mambu has several clients in the country, including Banco Macro. “Argentina is a market that has a strong local capacity in fintech and is looking at regulating the sector.”

In December, Mambu announced that Argentinian fintech Wenance selected its SaaS engine to help drive its Latin American expansion strategy. Wenance chose the solution for its flexibility and time to market, it said.

“Our legacy system could not scale with us or meet our growth aspirations,” Wenance CEO and founder Alejandro Muszak said in a statement announcing the deal. “In Mambu we found a solution that is future-proof, flexible and provides unrivalled speed to market. We have migrated all our existing accounts to Mambu and through its innovative approach, allows us to develop our future plans for operations in the region,” he added.”

Wenance started operation in 2014 and is now Argentina’s largest digital consumer lender with over 80,000 loans underwritten and a loan book of approximately $40 million. The company provides responsible lending by making credit decisions based on historical customer behavior.

“Over 40 percent of working people in Latin America lack access to credit and even more are unable to secure funds on fair and viable terms,” Muszak said. “We give applicants with thin credit files the ability to build and enhance their credit history and benefit from better terms on future products.”

NEW GENERATION, NEW OUTLOOK

Latin America has long been a challenging market for e-commerce due to widespread fears over fraud and the fact that many transactions still are done with cash.

However, Torres says a key driving force in Latin America fintechs are the young generation, who are less fearful of technologies than their older peers.

“The newer generation doesn’t have that fear,” he says.“The newer generations are using technology to order taxis through their wireless phones, ordering deliveries, taking selfies and publishing them through their phones. There’s a degree of comfort.”